All Things Smart Homeownership

The home closing process in 10 simple-ish steps

October 22, 2018

If you’re reading this, you’re probably entering the home stretch. Hang in there! The closing process, or settlement, transfers ownership of your new home from the seller to you. Yes, there’s a lot going on, and a lot of money is going to change hands. But when you know what to expect and plan well, it can be a smooth, relatively low-stress experience.

To be honest, some deep breathing and a little luck won’t hurt either.

The home closing process really starts as soon as you and the seller have signed a purchase agreement. People often refer to this period as being “in escrow.”

What’s the timeline? Usually four to six weeks. In tight markets, however, it can be as long as two months, because it’s harder for sellers to coordinate the sale of their house with buying another.

The whole process boils down to 10 doable steps. Closing on a home is a big deal, yet it might actually be easier than finding one that you want and can afford in the first place. And when it’s over, you leave with the keys! And a mortgage.

1. Choose your settlement company and/or real estate attorney

To close the deal on your home, you need a closing agent (also called a settlement or escrow agent). They’ll coordinate document signing for all the parties, verify that both you and the seller have met the terms of the purchase agreement, and finally pay out all funds, transfer the title, and record the deed.

In most states, the closing agent is a neutral third party who works for a settlement company (often called an escrow company or title company). Sometimes you can choose the company; this is often negotiated with the seller. The standardized Loan Estimate form you received after you applied for your loan lists the closing services you can shop for (see page 2, section C).

A handful of states instead require that you hire your own real estate attorney to serve as your closing agent. Yet others require one to prepare only certain documents, so you end up with both a settlement company and a real estate attorney.

Which states require an attorney for all or part of the process? We hesitate to give you a list, since laws change all the time. Most of them are east of the Mississippi. Your real estate agent will know what you need.

Where an attorney is optional, you might want one anyway. Unless you hire your own attorney, there’s no one at the closing who exclusively represents your legal interests. If there’s anything unusual about the sale, definitely play it safe and hire one. Even the best real estate agent is not a real estate attorney.

If you need a real estate attorney, personal recommendations are always a great place to start (your agent probably has one or more). Your state bar association might have a lookup. Hourly fees typically run from $150 to $350.

2. Buy homeowners insurance

Lenders require you to buy homeowners insurance and bring the policy to the closing. That coverage is pretty important to both you and them!

As you can imagine, the cost of insurance varies widely depending on the value of your home, how valuable your stuff is, and where you live. The average annual cost nationally is about $1,100.

3. Get title insurance (for you too)

When you buy a home, you’re buying the “title” to the property, which gives you sole, clear ownership. Title insurance offers protection in the unlikely but potentially devasting event that someone else, someday, makes a surprise claim on the property. Unlike homeowners insurance, it’s a one-time cost, not an ongoing expense.

The key thing to understand is that you need your own policy. Your lender will require you to buy title insurance to protect their investment, but their policy doesn’t cover you. Technically, it’s optional for you, but please don’t pass on it. Without it, you could lose your home and your entire investment if your title ever were challenged.

Unless you’re in a buyer’s market, it’s the buyer, not the seller, who usually pays for both policies. The cost of a title insurance policy varies widely around the country. The average is about $1,000. You can save money by buying both policies from the same company. Typically, the lender has a preferred insurance company, but you have the right to choose a different one.

4. Meet the conditions of the loan

Before you can close, you have to meet all the conditions set by your lender. They’re stated in your loan documents.

Some conditions could be specific to your loan, but standard ones include a clear title report, an appraisal figure that’s at least the amount of the loan, documentation of your income, and proof of insurance. If you become concerned about meeting any of the conditions, contact your loan officer ASAP.

5. Prepare to move

Once you know your closing date, you can swing into action on your move. Do yourself a favor and start your organizing, packing, and other tasks early. You’ll have enough on your mind on closing day without worrying about finding more boxes. Here’s a sanity-saving eight-week checklist for you.

6. Review the Closing Disclosure

This critical document, a nationally standardized form, itemizes the closing costs to both you and the seller and outlines key information about your loan. Because it’s so important, federal law requires that your lender get it to you at least three business days before closing so you have plenty of time to review it.

The costs shown in the Closing Disclosure should be similar to what you saw on the Loan Estimate back when you applied for the loan. Any surprises? Start asking questions.

7. Do the final walk-through of the home

The walk-through is a quick final look at your soon-to-be home. Your agent will schedule it, ideally for the same day you close. It’s best to do it within 24 hours before closing.

The walk-through may be quick, but it isn’t just a formality. Before you take ownership of the property, you need to make sure the seller really has moved out and left things in the condition you agreed to. Every agent has stories: sellers who haven’t even started packing, a smashed picture window … If anything is amiss, your agent will get on the phone immediately. And if your concerns can’t be resolved before the scheduled closing, it can be delayed.

If the seller was supposed to do anything major, have the work inspected by a professional before the walk-through.

8. Gather your documents

The closing agent (whether that’s a settlement company or your attorney) will send you a list of everything you need to bring to the closing. If you have any questions, don’t hesitate to contact the closing agent or your lender.

Here’s the minimum you usually need to bring:

Your homeowners insurance policy

Photo identification

A list of your addresses for the past 10 years

A cashier’s check for “cash to close” (closing costs and down payment), if you haven’t paid ahead of time

Your checkbook, just in case

9. Go to the closing and get the keys!

The last step of the closing process is the actual legal transfer of the home from the seller to you. The mortgage and other documents are signed, payments are exchanged, and finally, the waiting is over: you get the keys. If you have any unanswered questions, this is your last chance.

You’ll be facing a pretty big pile of paperwork. It’s not so bad if you know what’s coming, so here’s a brief guide to your closing documents.

Closing is usually held at the settlement company’s office. If your closing agent is your own attorney, it will probably be at their office.

Who will be there? This varies depending on where you live. Your real estate agent can tell you what to expect. Sometimes there’s a real crowd, including the closing agent from the settlement company, your attorney if you have one, the seller’s attorney if they have one, the lender’s representative, the seller, and both real estate agents. But in some cases, if the closing agent is your attorney, it could be just you and her.

10. File a homestead declaration

You may have the keys, but you’re not done yet. After you close, it’s smart to file a homestead declaration, also called a homestead exemption. In some states, homestead is automatic, but don’t assume. Ask your real estate agent or closing agent about it.

A homestead declaration registers your home with both the federal and state governments as your primary residence and protects it in different ways. Federal protections are uniform, of course, but some states are more generous than others.

The details can be a bit complicated, but homestead typically gets you at least three kinds of protection:

If you ever face bankruptcy, homestead can help prevent the forced sale of your home to pay debts, except for the mortgage (i.e. no help in a foreclosure situation), construction liens, and property taxes

Exempts you from a certain amount of property taxes

Helps a surviving spouse stay in the home

To file, contact your county assessor’s office. If an attorney is handling your purchase, she might include filing for homestead in her fee and file for you as part of the closing process.